Evaluating Strategies

Question 1

Strategic Methods for achieving objectives

Answer 1

1. Internal/Organic growth
2. Mergers with/takeover of firms
3. JVs/Alliances

Question 2

Internal/Organic Growth

Answer 2

-Funds and Profits are reinvested for growth

• Low risk
• Less disruptive
• Core competencies are used and built upon
• Less disruption to cash flows

Adopted when:

• No merger targets
• Too costly for mergers
• Necessary resources and competences are available internally

Question 3

Mergers and Takeovers

Answer 3

Merger:
-Shareholders come together, sharing resources of the 2 firms

Takeover:
-A marriage of unequal partners

Reasons:

• Increase market share
• Enter a new market
• Reduce competition
• Gain control of brands
• Access to distribution
• Broader product range
• Knowledge
• Economies of scale
• Use of spare or underused resources
• Asset strip
• Enhance reputation

Question 4

Vertical Integration

Answer 4

• Supply of services
• Packaging of services/product
• Retailing of services

Question 5

Horizontal Integration

Answer 5

Occurs between two firms at the same stage of production

Question 6

Diversification

Answer 6

A firm moves into totally new fields

Question 7

Integration Disadvantages

Answer 7

• Lack of research into the target company
• Cultural differences
• Lack of communication
• Loss of key personnel
• Paying too much for the firm
• Lack of fit in terms of products
• Firm may be too big for effective management

Question 8

JVs and Alliances

Answer 8

Franchising and licensing: Allows a product to be expanded quickly, brand owner can extend profits and the franchisee enjoys the marketing benefits of a well-known brand

Joint Ventures:
-Joint ownership of assets by the parties involved and the formation of separate independent operating companies for the management of the shared activities.

Strategic Alliances:

• Provide a means of capturing some of the benefits of globalisation by producing and marketing products to a worldwide market.
• Ability to use the expertise that alliance partners have developed in different parts of the world
• R&D costs shared
• Help to reduce competitive pressures as former rivals cooperate

Question 9

Strategic Evaluation: Suitability Analysis

Answer 9

Suitability Analysis: tests whether the option to enable the firm to achieve its objectives

1. Environmental fit
   PESTEL analysis

2. Resource fit
Audit
Portfolio Analysis
Product life cycle analysis
Value chain analysis

3. Cultural fit (Organisational culture)

Question 10

Strategic Evaluation: Acceptability Analysis

Answer 10

Acceptability Analysis: Do the options address organisational objectives and the expectations of key stakeholder groups in terms of:

1. Profitability
   Payback period: amount of time to repay the original investment
   Social: Cost-benefit analysis
   Impact analysis: social/local impacts eg jobs, local economy
2. Risk
   Financial risk
   Sensitivity analysis: sensitivity in terms of sales, prices, interest rates etc
3. Stakeholder satisfaction
   ID key stakeholders and their impacts

Question 11

Strategic Evaluation: Feasibility Analysis

Answer 11

Feasibility Analysis: Tests whether a strategy can be realistically achieved

1. Resources:
   Funding
   HR
2. Logistics:
   Scheduling/timing
3. Competitor Reaction
   High rivalry = competition